Daredevil Enders Woos Governments He Wants Out of EADS-BAE

European Aeronautic, Defence & Space Co. CEO Tom Enders, left and German Chancellor Angela Merkel prepare to speak during the opening of the Berlin airshow in Schoenefeld near Berlin. Photographer: Odd Andersen/AFP/Getty Images

Sept. 21 (Bloomberg) -- Tom Enders, a swashbuckling one-time German paratrooper, was planning to join German Chancellor
Angela Merkel on a state visit to China Aug. 29 when he decided
to take an end-of-summer outing and go hang-gliding.

Merkel ended up traveling without him. Enders, chief
executive officer of European Aeronautic, Defence & Space Co.,
made a hard landing, severely injuring tendons in his arms.
After recuperating at his home near Munich, he returned to work
on Sept. 3. Enders finally met Merkel Sept. 11 at the Berlin Air
Show, his right arm in a sling that matched his suit.

“You thought I was tough but you didn’t know how tough,”
he said with a smile.

Enders will need all that toughness and more as he attempts
a merger with BAE Systems Plc, while keeping government meddling
to a minimum. The fate of his goal to forge a European aerospace
champion from assets spread throughout the region’s three
largest economies now lies in the hands of the very governments
he wants to keep out of the new company.

“Tom has been very frank about loathing this setup with
political interference, and how that must change,” said Hans
Weber, who runs an aerospace consulting company, Tecop
International, in San Diego. “The French and Germans have to
get out of meddling. That’s very important to him. It’s so
important I think he’d stake his career on it.”

Failed Merger

Enders, who took over as chief executive officer in June,
has lobbied for years to pick apart the delicate balance between
French and German interests, a legacy from EADS’s origins a
decade ago when the company rose from a failed attempt to unite
the region’s aerospace companies. He has made the political
retreat a condition for the merger, putting pressure on Merkel
and French President Francois Hollande to agree when they meet
tomorrow.

EADS is negotiating with Germany, France, Spain, the U.K.
and the U.S. to back a merger with BAE that would create the
largest civil aviation and defense company, with a combined
market value of $45 billion. With France owning a direct stake
in EADS and the U.K. able to veto any change of ownership,
Enders must walk a fine line not to alienate the governments,
while loosening their grip as stakeholders.

Enders has spent months trying to piece together the
combination with BAE. The companies were putting the finishing
touches on a plan to present to governments for approval when
Bloomberg News reported the talks on Sept. 12. EADS and BAE
confirmed their plan the same day.

Bitter Loss

While Enders had been part of a failed merger attempt with
BAE a decade ago, the latest rapprochement was borne out of
defeat. Enders and his counterpart at BAE, Ian King, met after
their Typhoon warplane failed to win an $11 billion contract in
January. India instead selected Dassault Aviation SA, a
humiliating loss at the hands of a far smaller rival that thus
far had failed to secure a single export for its Rafale jet.

Discussions about defense cuts in Europe, and how the two
companies could cooperate, grew into a plan for an outright
combination, people familiar with the talks said. While
strategists initially weighed a takeover of BAE, that plan was
dropped because the U.K. government would have been unlikely to
agree to a Franco-German purchase, said two people, who asked to
remain unidentified because the considerations were private.

In total, executives spent five months exploring a
combination, with teams of executives and advisers shuttling
between London and Munich to hammer out a deal, the people said.
The German government created a cross-ministry working group to
explore the political ramifications, with Lars-Hendrik Roeller
acting as Merkel’s adviser, two of the people said.

London, Munich

Enders sought to drum up support in a letter to employees
this week, while putting pressure on governments to back his
plan. The shareholder pact created in 2000 to balance French and
German interests would fall by the wayside in a merger, he said.
Instead, EADS would hold 60 percent of the enlarged group and
BAE the rest, while the U.K., Germany and France would get
special shares to represent their national interest.

“The point is that this is a friendly deal,” said Zafar
Khan, an analyst at Societe Generale in London. “Management
will argue very hard that the expanded global platform will
create a growth opportunity that will lead to job creation in
the home nations.”

EADS rose as much as 0.6 percent to 26.10 euros and traded
at 25.88 euros at 12:01 p.m.in Paris, a 13 percent discount to
the company’s share price the day before its negotiations with
BAE became publicly known. BAE declined as much as 0.8 percent
to 338 pence.

Off Guard

While Enders acknowledged the proposed combination may have
caught investors by surprise, there were subtle hints the CEO
was plotting a transformation even before he took over in June.
He made clear from the get-go that he would shake up EADS,
telling employees in a memo that he’d travel the company to
“fuel changes in strategy, structure and organization.”

Under British takeover law, EADS now has until Oct. 10 to
formalize its offer, abandon the bid, or request to extend the
deadline. Enders and King are racing to put the accord together.
EADS is concerned that BAE may attract an interloper, a person
familiar with the process said. Still, the thinking at EADS is
that the U.S. government will support the deal on the grounds
that it will foster more competition than a merger between BAE
and one of its U.S. rivals, the person said.

Largely shielded from the public glare at the Farnborough
Air Show this year in July, Enders spent the summer months
weighing the finer points of the combination with BAE, said one
of the people. He kept in frequent touch with King, a Scottish
accountant by training who is in many ways the opposite of the
adventurous Enders.

Alter Ego

King, who would likely lead the combined defense business,
first began working with Enders in the 1990s when the former was
finance director of Marconi Electronics Systems, a supplier to
the Panavia Tornado and Eurofighter Typhoon fighter programs
that Enders was involved in. Since then, the two have had
regular meetings as they climbed the corporate ladder.

Enders’s distaste for too much meddling stems from his
experience from the failed attempt in 1999 to merge Germany’s
DaimlerChrysler Aerospace, where he worked, with British
Aerospace. The British company, now BAE Systems Plc, abandoned
the discussions amid political wrangling and opted instead to
buy General Electric Co.’s Marconi defense unit, leaving the
Germans with no option but to build EADS with the French.

Since that episode, Enders has earned a reputation for
chafing at outside interference. Still, his focus for now is to
avoid butting heads with the political powers whose support he
requires to realize his decade-old merger ambitions.

Protecting Jobs

Merkel has said she will discuss the proposal with Hollande
when the two meet in southern Germany tomorrow, their first
direct encounter since EADS and BAE unveiled their plans. The
two will not make any decision relating to the plan, her
spokesman, Steffen Seibert, told reporters in Berlin today.

Britain has 34,800 jobs to protect in the U.K. Germany has
already seen the move of EADS’s joint headquarters in Munich to
Toulouse in southern France, and there is a creeping concern
among politicians that the Airbus aircraft unit is pooling more
work in France. France, which owns 15 percent of EADS and a
board seat, would see its holding shrink to a 9 percent stake.

While talks with the governments are inching forward,
French negotiators led by the finance ministry are pushing back
on the grounds that they have the most to lose, a person
familiar with the process said. Informed in mid-July, several
ministries of Hollande’s new government are grappling with their
first major industrial challenge as they test their will to
create champions with Germany and develop European defense.

“Once again, the French government risks being a stumbling
block,” said Nick Cunningham, managing partner at Agency
Partners in London. “Maybe over time, the French government
will sell its shares but it won’t happen soon.”